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These 3 Apparel Retailers Are Surviving Amazon

American Eagle Outfitters, Abercrombie & Fitch, and Guess are all surviving Amazon’s blitz on retail.

Many investors shunned apparel retailers over the past few years, believing the bearish argument that the double whammy of Amazon's (NASDAQ:AMZN) attack on malls and the rise of fast fashion retailers like Inditex's Zara would gut the sector. That pressure wiped out apparel retailers like Aeropostale, American Apparel, The Limited, Wet Seal, and True Religion.

However, several apparel retailers not only survived the carnage, but emerged as much stronger companies. Let's take a look at three retailers that fit that description -- American Eagle Outfitters(NYSE:AEO), Abercrombie & Fitch(NYSE:ANF), and Guess(NYSE:GES).

Image source: Getty Images.

American Eagle Outfitters

American Eagle Outfitters has been one of the most resilient apparel brands in the US. It posted 8% comparable store sales growth last quarter, which represented its strongest comps growth since the third quarter of 2015.

That growth was fueled by 5% growth at its American Eagle brand and 34% growth at Aerie, its lingerie and activewear brand for younger women. Sales of both brands have been accelerating.

Q1 2017

Q2 2017

Q3 2017

Q4 2017

American Eagle

(1%)

0%

1%

5%

Aerie

25%

26%

19%

34%

Total

(1%)

2%

3%

8%

Comps growth by brand. Source: AEO quarterly reports.

Higher mall traffic, robust demand for jeans, rebounding interest from male shoppers, and an expansion into overseas markets like India all lifted American Eagle's comps. Aerie expanded its customer base at a double-digit pace throughout the year, thanks to its body positive ads and its expansion across social media channels. The company's digital business also grew 20% annually last quarter, accounting for nearly 31% of its revenues compared to 27% a year ago.

Wall Street expects AEO's revenue and earnings to rise 3% and 24%, respectively, this year. That's an impressive growth rate for a stock that trades at just 14 times forward earnings. AEO also pays a decent forward yield of 2.7%.

Abercrombie & Fitch

Abercrombie & Fitch was once a dying brand. However, CEO Fran Horowitz-Bonadies -- who took over in early 2017 -- brought the company back from the brink by slimming down its brick-and-mortar presence, renovating its A&F and Hollister stores, testing out new store models, launching a marketing blitz to "reset" expectations for A&F, and investing heavily in the growth of Hollister -- which overtook A&F as the company's top brand. This led to impressive turnarounds at both brands.

A&F's refinement of its brands and store count reduction led the company to a point where it can comfortably grow again. That's why analysts expect its revenue and earnings to rise 2% and 22%, respectively, this year. A&F's forward dividend yield of 3.4% is higher than AEO's yield, but A&F's stock is also pricier at 31 times forward earnings.

Guess

Like A&F, Guess was "left for dead" during the darkest days of the apparel meltdown. Its sales in the Americas were crumbling, and its overseas growth couldn't offset those declines. But then something remarkable happened -- its growth in Europe and Asia finally offset its softness in the Americas, and its revenues starting climbing again.

All these figures are higher on a US dollar basis over the past three quarters due to the weakness of the dollar. Guess attributes its growth in Europe and Asia to a reorganization of its sales and merchandising operations, higher investments in e-commerce, a revitalization of its wholesale channels, and more store openings.

Image source: Getty Images.

Guess is also partnered with Tmall. During last quarter's conference call, CEO Victor Herrero stated that in a few years, "the e-commerce business with Tmall alone could be as big as the e-commerce business we currently have in the US."

Wall Street expects Guess' turnaround to continue with 4% revenue growth and 21% earnings growth this year. The stock isn't particularly cheap at 22 times forward earnings, but it pays a forward yield of 4.3% -- which is tough to match in the retail apparel sector.

Author

Leo is a Tech and Consumer Goods Specialist who has covered the crossroads of Wall Street and Silicon Valley since 2012. His wheelhouse includes cloud, IoT, analytics, telecom, and gaming related businesses. Follow him on Twitter for more updates!